Mobile ads: Will advertising fund cheap mobile phone deals?

Analysis: Mobile operators need to decide how they are going to handle mobile ads.

Advertising is becoming omnipresent in modern life, particularly as many services become free. Is it possible that in future we will have completely free mobile services, paid for through advertising?

The basic advertising for content deal has been around for a while. Television channels have partially or wholly funded themselves with advertising for a long time.

In the digital age, the model is the same; a website might require you to view a banner ad before you can read an article. Spotify allows users to listen to music for free if they are willing to listen to an advert every few songs.

With mobile advertising set to be worth over $100 billion by 2018, according to eMarketer, it’s time for mobile operators to decide what they are going to do about it.

Some operators have tried to offer protection from ads as a service in itself; the user pays their subscription and receives a premium service where they have to interact with no ads whatsoever.

For example, UK operator Three is working with Shine Technologies to implement new technology to tackle mobile advertising at the network level.

Three said that it does not aim to eliminate mobile advertising altogether, but to empower the customers with more choice over the advertising that they receive. Three pledged to protect the right of consumers "not to have their data experience in mobile degraded by excessive, intrusive, unwanted or irrelevant adverts."

This approach could be a win-win for mobile operators. They limit the unwanted ads and the user is happier and gets a better data access experience. If they are curating the ads, they will also find a new revenue stream from the advertisers.

Other mobile operators are using advertising itself as a new revenue stream.

In the mobile arena, FreedomPop offers a completely free service, with a fairly limited data, voice and text allowance.

However, users can upgrade to a bigger plan in exchange for "performing specific actions with [FreedomPop]’s third-party advertisers."

These could include completing questionnaires or purchasing products or services. The provider clearly quantifies the amount of additional service the customer will get if they complete the required action.

One company working to bridge the gap between advertisers, mobile operators and customers is Aquto, which currently works in the US with AT&T.

As of October 2015, the start-up had raised over $16 million. Based in Boston, the firm has recently expanded into markets in Asia and Europe, with a partnership with Brightstar opening the door to a network across more than 100 countries.

Eligible AT&T customers can use the Data Perks app to accumulate data of up to 1000MB per bill period to their AT&T account.

Kester Mann says that the ad-funded model is tough to make work in the UK due to the competitive market and the "high costs of buying data and establishing a brand presence."

He cites the failures of Blyk and Samba as evidence of this.

Blyk, for example, was launched in 2007 in the UK, offering free calls and texts to 16 to 24-year-olds in exchange for viewing a certain number of targeted ads during the day.

It only reached 200,000 customers in its first year of existence and never expanded to the continent, being acquired by Orange in 2009.

Mann adds that the costs of plans are currently fairly low in the UK anyway, leaving little room for undercutting.

"Only last week, charitable MVNO The People’s Operator launched a tariff offering 2GB of 4G data for just £6.99 per month," says Mann. "This undercuts many of its peers, illustrating the tough ask for low-cost or discounted providers. When prices are so cheap already, the ad-funded business model could be tough to pull off."

Geraghty notes that when consumers are faced with a choice between free apps with ads, or paying even a nominal fee for an app without ads, "consumers overwhelmingly choose the free apps and tolerate the ads.

"While consumers may not like in-app advertising, their behaviour makes it clear that they are willing to accept it in exchange for free content, just as we have had in radio, TV and online media for decades."

However, Geraghty argued it was unlikely that mobile services would in future be completely funded by ads.

"This would depend on multiple factors including how tolerant the users were to the ads being served and how much revenue the advertisers would anticipate making buy essentially paying for people to have a free phone," he said.

He argued that since mobile services are fairly cheap anyway, consumers would be quite averse to a constant stream of advertising.

However, we may see mobile operators either blocking ads or taking a greater role in curating them in future.